Australia's Gambling Industries - Productivity Commission

D
The sensitivity of the demand for
gambling to price changes
Unfortunately, very little reliable data are available on the price sensitivity of the
demand for gambling as a whole or for particular gambling activities. This
appendix examines what is known about the demand for different forms of
gambling. It concludes that most forms are unlikely to be particularly sensitive to
changes in price, although there is likely to be significant variation in price
sensitivity among different gambling forms.
Two factors explain, at least in part, why most gambling forms are relatively
insensitive to price:
• As discussed in chapter two, unlike normal consumer goods, the price of
gambling is not readily apparent. To the extent that consumers do not know the
price, it is reasonable to suggest that they will not be particularly responsive to
price changes. It is particularly difficult to determine the price where there are
infrequent or highly variable payouts. As Weinstein and Deitch (1974) contend
‘gamblers will be more concerned about the odds and hence more responsive to
tax/price changes, where there is a good chance of winning any particular bet’.
• Secondly, there appears to be only limited substitution of one gambling form for
another by consumers. The less substitutable a good is, in general, the less price
responsive it is.
- As illustrated in figure 19.2 (in chapter 19) the introduction of gaming
machines and casinos in a number of states drew more gamblers into the
market, rather than drawing significant revenue from existing forms of
gambling.
- Gaming machines have a significantly lower payout ratio than most casino
table games (ie a much higher price), yet gaming machines are still very
popular within casinos, indicating a lack of substitution by these gamblers
based on price.
In the discussion that follows it is important to recognise that the responsiveness of
the demand for a gambling game overall, can be different to the responsiveness as
measured at a particular tax rate. For instance, as shown in figure 1 the demand for
petrol is inelastic over a large range of prices. Yet at a high price of $1.50 a litre,
PRICE SENSITIVITY D.1